Sell house to Pay off Debt and Rent short term.

Parameter

Hi all

New member here with a bit of complicated question. Any help would be greatly appreciated.

We are considering selling our current out to pay off a relatively large amount of debt in order to give our credit rating a clean slate so to speak.

We then plan on renting for a period of 12 months while we save up a deposit of approximately 20 k for a new property as a 10 percent deposit.

My partner and I take home 3950 pound a month between us.

We currently pay out 539 a month to service 24k of credit card and overdraft debt of which there are 12 individual lines of credit.

We then pay 363 a month service a 15k loan which has 5 years to run.

We then pay 1448 a month of household bills leaving us 1600 a month in spare cash each month.

Up until two months ago we only had 700 a month in spare cash as we were paying off two other consolidation loans so are only just in a position where we can begin to tackle the rest of our debt.

We currently are paying our credit card debt of 24 k via the debt snowball method starting at 1020 a month and this should end in March 2017 at this rate and then plan to use the equity from our house as our deposit to move on as will then have 2.1k spare a month and will only be servicing the loan that remains.

Our question to you guys is that alternatively we are considering selling this house (worth 135k) as we have equity of around 25 k in it , paying off said card / OD debt and then moving into rental property for 12 months while saving up the 20 k deposit at around 1.7 k a month.

We are mainly considering this as we have 13 lines of credit and want to reduce this to just one (the loan) thus making our previous 12 months accounts look healthy when it comes to a mortgage application. (We are aiming for a property around 220k btw)

We currently have no dependants but are trying for our first child so also want a clean bill of financial health before any kids arrive. Following my partners generous maternity she will be going back for 3 days a week , reducing our income by around 650 pounds.

We have no defaults , late payments CCJs on our credit report but do have several pay day loans from about 2.5 years ago.

Also we don't have the option to balance transfer at present.

Any advise on this would help us a great deal .

Pixie5740

If you have £1600 of spare cash each month, why are you not throwing £1600 extra at your debts each month?

Selling your home to repay your debts would only work if you understand how you got into debt in the first place and stop doing whatever it was that caused you to overspend. Otherwise you'll sell up, continue over spending and end up renting for more than 2 years.

Parameter

Hi

The overspend was brought on by moving into our first house on one wage (what was a sub prime mortgage in 2007) while my wife was at uni, our wedding and our first car.

1600 spare cash is meant in the sense that it is 1600 spare outside of all bills , not including any leisure activities , meals out etc, with which we have allowed ourselves 500 to 600 pound pm.

chelseablue

Id try and forget about spending 500-600 on the meals out etc and throw it at the debts, it wouldn't take too long to clear that way

charliewocka

Have you taken into consideration the costs associated with buying and selling (any early redemption fees, estate agents fees, solicitors fees), and then the mortgage fee, surveys, searches, solicitors, stamp duty etc. when you go to buy again? You might not have as much equity as you initially thought left over.


Also, if moving to rented accommodation, having a months rent available, and up to two months deposit available?


I would stay going as you are and throw any spare cash you have to the debt.

LittleDutchgirl

I agree with Pixie. Selling the house is form of consolidation loan and that hasn't worked in the past. You need to get to the root of the problem and find out why you are overspending and why you are in debt. A detailed SOA and a spending diary will be very revealing. It is tough when you first start debt busting but once you clear one or two cards you'll feel more positive and the credit card companies hate a cleared card. They will start to make all sorts of offers including balance transfer. At this point you can start to move money around to reduce interest and really get things rolling.
If you sell the house and rent you run the risk of paying as much in rent as you currently do in mortgage plus the horrors of short term tenancies.
Deal with the basic issues and keep us posted.
Good luck
LDg

Parameter

Thanks for the reply but this isn't the issue , we don't plan on tackling the debt with no pocket money so to speak, we are not in any kind of rush in that respect , we have been paying 1k to 1.5k a month towards debts for the past 2 years.

We are simply asking whether we should continue with the debt snowball for 14 months or sell up , clear the debt and save for 12 months, tidying up our credit report in the process.

Pixie5740

In others words you've been living beyond your means as many others on this board have done too including myself.

I think you're seeing selling the house as a quick fix. As charliewocks points out there are substantial fees in buying and selling property so you might not be as well off as you think. You're wanting to use a hammer to crack a nut.

I do think that spending £500 to £600 on going out and leisure activities is high, especially when you have so much debt. You might find it helps if you go through your last 12 months statements, fill in a statement of affairs and start keeping a spending diary.

http://www.stoozing.com/calculator/soa.php

Parameter

As a side note , that 500 to 600 also includes clothing, birthdays etc etc.

charliewocka

If you are continuing to pay your debts and meeting monthly payments you will be 'tidying' up your credit report in the process anyways. Remember, your credit score is a made up number by the credit report agencies and any lender will have their own criteria when applying.


Are you looking to obtain further credit in the near future?

Parameter

Understood, no , we paid of 3 of said lines of credit this month and closed the accounts.

As far as the snowball goes , we plan on reducing everything down to the loan and a credit card each at zero balance in order to maintain some form of credit history and utilisation ratio.